Sell Now... or Forever Hold Your Peace
A confluence of events over the last year has created urgency among some baby boomer business owners to sell their businesses: pandemic shutdowns, supply chain interruptions, stringent safety regulations, loss of employees, trying to creatively rebuild their losses, etc.
In addition, now, there’s speculation that taxes will be increasing in the near future, which would directly impact business owners who want to sell. A recent article in Forbes “Business Owners: Sell Now... Or Forever Hold Your Peace?,” argues that current political winds “all but guarantee that capital gains rates will increase, consistent with Biden’s tax plan. The impact for business owners will be substantial—If rates double as proposed, owners will need to sell for 33% more just to receive the same after-tax proceeds.”
With possible tax increases and the projected strong merger and acquisition (M&A) market this year, owners who have been putting off their exit planning should start now to take advantage of current market conditions. Navigating life and operating a business in this new world has been a challenge for owners, many of whom may have been contemplating selling for years. If you’re among those who say “I’m done,” and the time is right for you, don’t miss your opportunity to sell.
“While no one knows exactly when these changes will go into effect, the conclusion is similar,” emphasizes the Forbes article: “Owners should consider expediting their sale process to sell within this limited window or risk delaying their exit indefinitely with the hope that a future sweep by a Republican administration will revert rates back.”
What You Need to Know about Taxes on the Sale of Your Business
Regardless of the political climate in D.C., if you’re thinking about selling your business, it’s critical that you understand the tax implications of the sale – whether you plan to sell to an outside buyer or employees or “gift” your business to family members.
Different types of taxes that should be considered by business owners, include:
- Income taxes on personal earnings and business profits
- Ownership transfer taxes
- Estate taxes
Business transfer tax is a very complex area. There are numerous nuances and you don’t need to become an expert, but you at least need to have a cursory understanding in order to minimize your tax bite. As part of your overall exit plan, tax planning may involve many of your current advisors including your estate and wealth planning professionals, attorneys, CPAs, etc.
Conditions for selling your business are very good right now. If the forecasts for the coming year are correct, we will see a continuation of the M&A rebound we saw in the second half of 2020, which is even more reason to get your exit plan in place now before the window closes! According to the Forbes article, “Although tax rates are unlikely to rise in the first half of the year, the time to start a thorough M&A sale process is now.”
Taking the time to get properly educated on this topic will help you realize significant tax savings and preserve your hard-earned wealth. Our members have saved millions of dollars on their business transfers by planning in advance and taking action to legally minimize their taxes (tax avoidance is legal while tax evasion is not!)
